GDP Grows 2.6% in Q2; Solid Gain Over Q1

Even though 2.6% is an improvement, first half economic growth averages just 1.9%, continuing to reflect a slow-growth economy.

By

Amey Stone

July 28, 2017 8:56 a.m. ET

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Second quarter gross rose domestic product (GDP) rose 2.6%, slightly lower than economists' recently raised expectations. But it was much stronger than the first quarter GDP reading of 1.2%, which was revised down from 1.4%, according to the government’s report released Friday.

That puts the first half average growth at 1.9%, still under 2%, and no great shakes, points out Thomas Byrne of Wealth Strategies & Management. He assesses:

Is 2.6% a sign of the economy is picking up speed? I am not sure. Although a pickup in business investment is a good and possibly durable sign, but it and the moderate increase in inventories are probably due in part to a “catch-up” from a soft Q1. Just as I was not overly disheartened by the soft Q1 prints, I am not overly excited by a 2.6% GDP print.

The yield on the benchmark 10-year Treasury note fell following the announcement to 2.30% from 2.33% just prior.

Within the report, the price index was lower and there was no rebound in inventories, notes Ian Lyngen and Aaron Kohli of BMO Capital Markets. They see they consumer continuing to carry the growth mantle. And with no inflation pressure evident, they wonder if the Fed will hike rates anytime soon. They write to clients:

While growth was reasonable, the absence of inflation pressures is more concerning and certainly doesn't point to any urgency for the Fed to hike again later this year. Perhaps we're in for a taper-and-pause dynamic.

"I’ve used the adjective ‘mediocre’ many times to describe US growth and that remains the same," sums up Peter Boockvar of The Lindsey Group.

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